Arbor Realty Trust Inc Q3 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Steve DeLaney - JMP Securities - Analyst : Thanks for the helpful additional details on your NPLs and loan loss in the press release. That's very helpful. I was wondering, you've obviously built CECL reserves. I think Paul said whatever it was $180 million over the last 18 months. One thing that's not in your release, I guess we could find it in the reconciliation of your loss reserve. Could you comment about the actual amount of realized losses that you've taken this year and as you work through the whole process, do you think about it that way, Ivan, that there's paper, reserves, but at some point, in time, there's a real loss. And that's kind of what I'm getting at, if you could give us some idea of what the real losses look like compared to the loss reserves.

Question: Steve DeLaney - JMP Securities - Analyst : Got it. That's helpful to understand. And just we noted in the press release, the $100 million three-year note issue at 9%. Could you comment on the purpose and use of proceeds. Just on the surface, it looks like expensive capital. Just curious what your thought process was with that.

Question: Stephen Laws - Raymond James Financial, Inc. - Analyst : I want to follow-up on Steve's question there on the capital. You mentioned the construction opportunities. Ivan, you mentioned in your prepared remarks, some of the best loans over the years have been done at kind of this point in the cycle as far as the bridge loans. Can you talk about how that pipeline builds into next year? And as you need more capital, how much more unsecured debt are you comfortable raising without equity? Or were you look at hitting the -- tapping the ATM a little bit? Curious to get your thoughts on how you'll raise capital to fund the growth opportunities.

Question: Stephen Laws - Raymond James Financial, Inc. - Analyst : Paul, I know in your prepared remarks, you mentioned kind of a little troughing on the earnings here in this quarter, next quarter kind of near term. As we look back half of next year. Is it fair to assume we're going to get a decent amount of earnings lift between the NPL resolutions, recycling capital and then resolutions on the REO assets as well. Is that the right way to think about earnings kind of ramping next year?

Question: Stephen Laws - Raymond James Financial, Inc. - Analyst : Right. Well, appreciate the comments this morning, and you guys have done great to kind of managing through a pretty difficult environment to last year. And we'll show the successes you've had managing through that. So I appreciate the comments.

Question: Rick Shane - JPMorgan Chase & Co. - Analyst : Just a couple of things. Ivan, you talked a little bit about the backlog associated with the agency business. And given the run rate through July, which I think last quarter you guys had said was about $360 million. We were surprised not to see an acceleration there. I'm curious how this actually works from a pipeline perspective? Do your borrowers lock rates? So is this just a deferral or if they didn't hit that window where rates were below 4% for two months, which you sort of signaled as the big number. Is that basically lost opportunity until the next time we see rates tick lower?

Question: Rick Shane - JPMorgan Chase & Co. - Analyst : Great. It's very helpful context. I appreciate that. Just pivoting quickly to distributable income. Paul, when we look at that number and think about the mods and the loans that are picking. I am assuming with the way you report numbers that PIK income is included in distributable. And I apologize, I'm bouncing around a lot this morning. If you mentioned this. How much PIK income was there that was reported that is non-cash in the third quarter?

Question: Rick Shane - JPMorgan Chase & Co. - Analyst : It's very helpful. And I'm scanning the second quarter transcript as you were speaking, that $15 million, I can't find the number in the transcript at the moment. Is that comparable to, I think, you said $9 million last quarter.

Question: Rick Shane - JPMorgan Chase & Co. - Analyst : Great.

Question: Rick Shane - JPMorgan Chase & Co. - Analyst : Okay. Great. And actually, Paul, you're going to regret keeping talking because I will ask one last question that occurred to me. Please remind me your policy on REO. Do you -- when you -- and we've noticed this differs company to company, do you realize any loss when you take property REO?

Question: Jade Rahmani - Keefe, Bruyette & Woods, Inc. - Analyst : And really great to get all those answers to pick very helpful. I know investors have a lot of questions about that. Wanted to ask on cash flow performance. It dipped in the third quarter. If we exclude timing of agency originations and loan sales, operating cash flow was $68 million, down from $94 million last quarter. I know there's some seasonality. Again, this excludes timing related to the agency business, but it is below the dividend. Typically, you do have a pickup in the fourth quarter. So can you just talk to the cash flow operations outlook? And if the dividend you expect to be sustained?

Question: Jade Rahmani - Keefe, Bruyette & Woods, Inc. - Analyst : Great to hear. Regarding liquidity, how much liquidity do you expect to use of the $600 million to take back the $250 million REO that you mentioned you expected? And also, I assume there'll be further modifications.

Question: Jade Rahmani - Keefe, Bruyette & Woods, Inc. - Analyst : I also wanted to ask about loan putbacks from the GSEs. I think one of your competitors has had put back and another made some disclosure. But I don't believe there's been any disclosure from Arbor. Have you experienced any of that?

Question: Jade Rahmani - Keefe, Bruyette & Woods, Inc. - Analyst : And lastly, just because investors ask about it, is there any comment or update you could provide regarding the DOJ inquiry that was reported?

Question: Crispin Love - Piper Sandler Companies - Analyst : Ivan, you mentioned in the prepared remarks that now could be the time to start ramping up the bridge lending program. So just looking at this quarter, originations were down to around [$15 million] or so, which have come down in this environment, which completely makes sense. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. NOVEMBER 01, 2024 / 2:00PM, ABR.N - Q3 2024 Arbor Realty Trust Inc Earnings Call But they were $100 million in early 2023 and significantly higher than that previously. So curious on what you're seeing right now, how the demand is from borrowers right now and just how some of those conversations are going and how you might expect originations to trend down the bridge side?

Question: Crispin Love - Piper Sandler Companies - Analyst : All right. I just want to make sure I got that. Did you say that you -- you'd expect $300 million to $400 million of bridge originations between now and year-end?

Question: Crispin Love - Piper Sandler Companies - Analyst : Great. I appreciate all that color. And then just one last question for me. Just curious on your confidence in the current dividend level. You've been covering it with DE. DE has softened a little bit. So it seems like there could be some near-term pressure there, but kind of more confident as you look out from 10 to 12 months, as you said. So I'm just curious on how you and the Board are feeling about the current $0.43 dividend in the environment right now.